The US dollar climbed from its lowest level in two years and global stocks rose after upbeat economic reports, and signs corporate earnings season was not as bleak as forecast, bolstered market sentiment.
The dollar index, which measures the currency against six peers, rose 0.4 per cent on Monday, after tumbling 4 per cent in July in the worst fall since 2010.
Lee Hardman, currency analyst at MUFG, said factors that pressured the dollar in July were still at play, but that the intensity of the recent moves meant investors would need to reassess whether it was fairly priced against its major peers. Both the pound and euro fell 0.4 per cent against the buck to $1.303 and $1.172, respectively.
“The ongoing fall in US real yields and rising US political uncertainty have played a role in helping to weaken the US dollar,” he said. “While those fundamental developments remain negative for the US dollar, we have to take into account that it has already moved a long way in short period of time.”
The reversal of the dollar’s extended decline came as the spread of coronavirus in the US appeared to be slowing.
The growth rate for new virus cases eased to an average of 1.13 per cent per day, compared with an average of 1.70 per cent over past five weekends, according to Deutsche Bank’s Jim Reid.
Futures markets tipped US stocks to climb higher when Wall Street opens later in the day, with the S&P 500 expected to rise around 0.6 per cent.
Equities in Europe pushed higher. The continent-wide Stoxx 600 climbed 1.4 per cent on Monday, after slipping 1.1 per cent in July to snap three consecutive months of gains. Frankfurt’s Xetra Dax rose 2.2 per cent, while London’s FTSE 100 added 1.2 per cent.
Ross MacDonald, European equity analyst at Morgan Stanley, said that more than two-thirds of the region’s companies had beaten expectations in second-quarter earnings reporting season, despite being the worst quarter for profits on record.
“With second-quarter results still on track to deliver an upside surprise, there has been a clear [bottoming] out in expectations for the hit to 2020 profits,” he said.
The strong gains for the export-orientated Dax came as the Caixin purchasing managers’ index, a private gauge of operating conditions in China’s manufacturing sector, showed the biggest improvement in almost a decade.
Firmer customer demand for Chinese manufacturing products also buoyed mainland equities, with the CSI 300 of Shanghai and Shenzhen-listed stocks adding 1.6 per cent.
“Overall, flare-ups of the epidemic in some regions did not hurt the improving trend of the manufacturing economy, which continued to recover as more epidemic control measures were lifted,” said Wang Zhe, senior economist at Caixin Insight Group.
A separate survey by IHS Markit showed activity in Spain’s and Italy’s manufacturing sectors returned to growth last month, in a sign that some of the economies most severely affected by the pandemic were beginning to recover.
Equities in the Asia-Pacific region were mixed. Japan’s benchmark Topix index closed up 1.8 per cent, while Australia’s S&P/ASX 200 was little changed.
Hong Kong’s Hang Seng index fell 0.6 per cent in its first trading session since the territory’s leader, Carrie Lam, on Friday postponed elections for the city’s legislature, drawing condemnation from Washington. A sharp increase in loan-loss provisions and a plunge in second-quarter profit at HSBC, whose Hong Kong-listed shares dropped more than 4 per cent, also weighed on the benchmark.
The price of gold briefly rose as much as 0.7 per cent to a fresh record high of $1,984.66 per troy ounce on Monday morning but pulled back to be down 0.2 per cent on the day.
